Home loan insurance is a loan protection plan that minimises the risk for lenders and safeguards the borrower’s family from the burden of repaying the loan. It offers outstanding loan protection in unforeseen circumstances like the borrower’s death, disability, or job loss during the loan term. The policy tenure will be the tenure of the loan. The insurance company is responsible for clearing the outstanding liability in the home loan if anything is uneventful, like disability or death of the borrower or if the borrower loses his job.
Understanding Purpose and Coverage Duration in Home Loan Insurance
To understand what home loan insurance is, you should also know the purpose, coverage, and duration of the home loan insurance. The details are as mentioned below:
Purpose
The purpose of the best home loan insurance policy is to safeguard the family from the burden of repaying the home loan and also to protect the interest of the lending institution. The insurance company clears the home loan outstanding in the event of the borrower’s death or impairment and loss of income.
Coverage Period
The coverage period will be the same as the loan period. If the home loan is for 30 years, the home loan insurance policy’s tenure will also be 30 years.
Importance of Home Loan Insurance
Home loan insurance should be considered for the following reasons:
Protects Family
If you purchase home loan insurance in India, the insurance company is responsible for clearing the outstanding liability in the home loan in the event of the borrower’s untimely death. This aspect provides financial security for the family without passing on the burden of repaying the home loan. It protects the family from a financial crisis or losing their home when they are dealing with an emotional challenge.
Safeguards Lenders
Banks and financial institutions have to face the risk of non-repayment if the borrower expires during the loan term. This loan default insurance protects the lender’s investment by offering coverage for the home loan liability. They take the onus of clearing the home loan dues under unforeseen circumstances.
Prevents Financial Strain
If you are the sole earning member in the family and have availed of a home loan, your family go through financial distress if anything uneventful happens to you during the home loan term. They may not be able to honour the monthly EMIs and may end up losing their home. Availing of insurance for home loan will mitigate this risk as the insurance company pays off the home loan dues.
Characteristics of Home Loan Insurance
The characteristics of home loan insurance are:
Premium Payment Options
The options available for premium payments of the best home loan insurance policy in India are:
Lum Sum Payment
The premium can be paid in one lump sum for the entire policy term.
EMI Integration
The premium can be included with the home loan amount and paid in monthly instalments with loan EMIs. If the borrower is not able to pay the premium in one go, this option will be convenient.
Joint House Loan Borrowers
If the home loan has multiple borrowers, i.e., if it is availed in joint names, the insurance for home loan borrowers provides coverage to all the borrowers. If any of the joint borrowers expire during the home loan tenure, the insurance company provides coverage to the extent of the deceased joint borrower’s share. The joint borrowers will generally be the borrower’s parents, spouse, or children.
Riders and Add-Ons
Home loan insurance can be considered peace of mind insurance as it has provisions for riders and add-ons besides offering loan repayment security, and they are:
Basic Coverage
The main purpose of home loan insurance in India is to provide home loan coverage and take responsibility for repaying the outstanding liability if the borrower dies during the loan term.
Additional Riders
You can also choose add-ons like critical illness insurance and death and disability coverage, Some home loan insurance policies provide loss of income riders and provide coverage to the extent of 6 months’ EMI if the borrower loses his job.
Best Type of Home Loan Insurance Policy in India
The best home loan insurance policies in India are:
Hybrid Home Loan Insurance Plans
Under this best home loan insurance policy in India, the coverage does not change during the first year. From the second year onwards, it keeps changing according to the outstanding liability as the liability starts declining after the second year.
Level Cover Plan
A level cover plan is a mortgage insurance plan wherein the coverage amount remains constant for the entire home loan term.
Reducing Property Insurance for Home Loans
The home loan insurance coverage amount keeps changing with the outstanding liability. As and when the EMIs are paid, the debt keeps decreasing and the coverage changes accordingly.
Benefits of Home Loan Insurance
Now that you understand what is home loan insurance, you will be convinced that covering the home loan liability is a smart decision considering the following benefits.
Economical
The premium payment options in the borrower life insurance plan make it affordable to them. The borrowers can choose to pay the premium for the entire policy term up front or can opt to include it with the home loan amount and pay it in instalments along with the home loan EMI.
Protection
The primary benefit of home loan insurance is the home loan safeguard. The family members may find it difficult to repay the loan in the absence of the borrower, and the collateral may be confiscated. Investing in a home loan insurance policy amounts to financial planning for home loan. The insurance company clears the home loan outstanding in the event of the borrower’s untimely demise and spares the family from the debt burden.
Tax Benefits
Home loan insurance reduces the overall tax burden. The home loan insurance premiums qualify for deduction under Section 80C of the Income Tax Act 19611.
Difference between Home Loan Insurance and Home Loan
The difference between home loan insurance and home loan is explained in the table below: